The Economist says it's possible. (h/t: The Eclectic Econoclast)
Chief among the worries is the oil industry. The Gulf of Mexico provides about a tenth of all the crude oil consumed in America; and almost half of the petrol produced in the country comes from refineries in the states along the gulf's shores. Oil companies are busy assessing how much damage was done to drilling rigs, refineries and port facilities; but even if the infrastructure is largely intact, shipping delays threaten to idle refinery production. This is bad news considering that refineries have been running flat out in recent months to keep up with high demand. The White House says it is considering opening up the strategic petroleum reserve to supply refiners caught short by the hurricane.
The oil situation is really the only aspect of this story that has recessionary undertones. Even at the high end of the damage estimates (admittedly it's early to think about estimating the amount of damage) we're talking maybe a quarter of a percent of GDP. And that's only if the total comes in smashing the record sent by Hurricane Andrew in 1992. There will be lost jobs at hotels and casinos that have been destroyed. There will be disruptions in a myriad of ways large and small. It will result in a slowing of GDP growth in that area, probably for the rest of the year. But viewed in the national statistics, the direct effect will be a small ripple. The big story is Katrina's effect on refining capacity.
I've been hearing reports on various news networks that a little less than 10% (one said 8%... I have no hard evidence on the accuracy of this number) of the nation's refining capacity has been impacted. In an environment where we're already running the refineries full-tilt to keep up with demand, that is a significant hit. Wholesale gas prices are already being affected, and this is only the first 48 hours after the hurricane. Of course it will take a few days before we really know where we stand.
As I mentioned earlier, this is a bigger story than the effect on the crude oil market itself, and no less important to the national picture of our economy. All of a sudden, we're dealing with a bottleneck in the production of gasoline, natural gas, heating oil, and other petroleum products with no clear indication yet of how long this shock could last.
I've been reluctant to join in the chorus of voices predicting recession, and I sincerely hope that this event will not lead me to revise my probabilities too terribly much. Like everyone else, I'm just waiting to see what the news coming out of the refineries is going to be. Calculated Risk has had a couple of posts on this topic, including this one and a pointer to this article from Marketwatch.com. We're in a wait-and-see mode, which is frustrating, but I'm going to resist the urge to speculate any further at this early stage about how long lasting the disruption might be.
$70 oil is tough on the economy, and so is $3 gasoline. Even if oil prices recede a bit because Katrina's impact on the global market is small, the higher gas prices (and heating oil, natural gas, etc) will be a major concern. This is definitely something to watch.
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